Hizbollah sanctions back Lebanon’s banks into a corner

The US demand for Lebanese banks to freeze accounts belonging to Hizbollah leaves them in a nasty spot. The choice is one of rubbing the Shiite militants the wrong way or international sanctions that could cripple Lebanon’s economy, reports Josh Wood, Foreign Correspondent.

Lebanese forensic experts inspect the site of the bomb blast at Blom Bank in Beirut on June 12. Patrick Baz / AFP

BEIRUT // When a bomb went off during iftar, residents in Beirut feared a return of the familiar. Was it another suicide bomber from ISIL or Al Qaeda bent on killing innocent civilians, or the assassination of a Lebanese politician?

But as the smoke cleared, the June 12 attack on Blom Bank began to appear a little different. The shattered glass, wailing sirens and crushed cars that accompany all bombings were there, but there were no fatalities and only two people were injured.

In a city accustomed to mass-casualty bombings in the years since Syria’s civil war began and long used to political assassinations, the revelation that nobody had been killed brought relief, albeit temporarily.

Just ahead of the bombing, Lebanon’s central bank governor Riad Salameh said Lebanese banks were complying with a new US law targeting the finances of Hizbollah and had begun freezing accounts linked to the powerful Shiite party and paramilitary organisation.

Fingers soon began pointing at Hizbollah as concerns grew over how far the group would go to protect its use of the banking system.

“It seems obvious that Hizbollah is not comfortable and it has a serious opposition to how the banking sector in Lebanon has decided to deal with its accounts,” said Imad Salamey, a professor of political science at Beirut’s Lebanese American University. “Hizbollah is dissatisfied and it’s not willing to concede such measures and has every motive to take the battle against the Lebanese banking sectors to any ends, including the potential bombing of the banks.”

Hizbollah has not admitted the bank attack and there has been no evidence against the group yet, but investigations into politically sensitive bombings in Lebanon usually go nowhere.

Less than two weeks after the bombing, Hizbollah chief Hassan Nasrallah brushed off assertions that the group will be affected by the sanctions despite his group’s vocal opposition to the new law.

“We do not have any business projects or investments via banks,” he said, insisting that Hizbollah relies on Iran, not the banking sector, for its financial wellbeing.

“We are open about the fact that Hizbollah’s budget, its income, its expenses, everything it eats and drinks, its weapons and rockets, are from the Islamic Republic of Iran.”

Cutting Hizbollah’s funding

US president Barrack Obama signed the Hizbollah International Financing Prevention Act (HIFPA) into law in December last year. The law puts pressure on financial institutions to take action against Hizbollah-related accounts under the threat of sanctions. The US and the GCC and a number of other countries consider Hizbollah a terrorist organisation, and the group has faced years of sanctions.

Since the September 11, 2011 attacks, US attention has largely shifted away from Hizbollah towards groups like Al Qaeda and now ISIL. Hizbollah keeps up a fiery rhetoric against the US, but it has been nearly three decades since the group last attacked an American target - and it is unlikely to be planning one soon.

But crushing the group has long been on the minds of many powerbrokers in Washington since the Hizbollah bombing of the Beirut Marine barracks in 1983 which killed 241 Americans and a bombing of the US Embassy earlier that year that killed 17 Americans, including high-ranking CIA officers.

In June, just days before the Blom Bank bombing, the governor of Lebanon’s central bank Riad Salameh said that 100 Hizbollah-linked banking accounts had been frozen by Lebanese banks.

“I do think that it has become clear to Hizbollah that it is not possible to conduct yourself as a terrorist organisation and at the same time have unimpeded access to the international financial system,” Daniel Glaser, the assistant secretary for terrorist financing at the US department of the treasury, told The National.

Mr Obama’s sanctions czar Adam Szubin told Congress in may that “after many years of sanctions targeting Hizbollah, today the group is in its worst financial shape in decades”.

“We are working hard to put them out of business,” he added.

Banking dilemma

But the new US legislation targeting Hizbollah’s financing puts Lebanese banks in a tough spot. If they go after Hizbollah-linked accounts, they risk becoming targets of attacks and potentially stoking a larger conflict in Lebanon between Hizbollah and its detractors. If they ignore the law - or are not stringent enough in enforcing it - the banks themselves could be sanctioned by the US in a move that could hurt the Lebanese economy.

“They’ve been put to a fundamental choice which is a rather difficult one, and that is that they can either work with the [US] Treasury and with other banks connected to the global system, or they can work with Hizbollah,” said Jonathan Schanzer, vice president for research at the Foundation for Defense of Democracies and formerly a terrorism finance analyst at the US treasury department.

While Lebanese banks could get into trouble if they do not comply with the new act, Mr Glaser stressed that Lebanon’s financial system was not the target.

“These laws should not and will not be implemented in a way as to target the Lebanese financial system, weaken the Lebanese financial system, or applied in a way to target a particular community or religious sect or the Lebanese people generally,” he said. “It’s intended to target ... Hizbollah as an organisation, Hizbollah members and entities that are owned or controlled by Hizbollah.”

State within a state

To the unfamiliar, Hizbollah is sometimes viewed as a rag-tag, unruly militia. The reality is that it is extremely sophisticated and in many ways operates more as a state than a political party or paramilitary group.

In Lebanon, the group has relative autonomy over the areas it controls, like a state within a state. Hizbollah handles its own security and much of the infrastructure for residents these strongholds.

The group also runs schools, hospitals, and foundations that pay out money for families of martyrs and other social welfare services.

Hizbollah owns companies, including a giant construction firm responsible for rebuilding Beirut’s southern suburbs after Israel’s 2006 war with Hizbollah.

Supporters of the group are active in business in Lebanon and across the world and are believed to funnel money back to the group and operate shell companies to help the organisation.

The group is currently at war in Syria, where it has become a foreign power intervening on behalf of the regime of Syrian president Bashar Al Assad. The war has boosted the group’s reputation as a fighting force. Its fighters are well trained and disciplined.But maintaining its military commitments costs a lot of money. Given that Hizbollah is not just in the business of procuring weapons and ammunition for fighters - but provides services like healthcare and education for many Lebanese - money cannot move solely through informal channels like bulk cash drops from state sponsors.

Going after Hizbollah’s money is an ambitious endeavor that expands well beyond Lebanon.

Looking at the list of Hizbollah-linked entities identified by the US treasury department gives an idea of how far Hizbollah’s activities and business deals reach.

On the list are travel agencies in Caracas, Venezuela and a charity in Dearborn, Michigan, the American city with the highest Arab-American population. In China, an electronics firm in Guangdong and a company that manufactures unmanned aerial vehicle equipment in Guangzhou are identified.

In Nigeria’s capital Abuja, an amusement park called Wonderland and a supermarket called Amigo are linked to Hizbollah. In Dubai, Unique Stars Mobile Phones LLC is on the list.

The group has also been accused by the US government of dealing in South American cocaine.

Bypassing sanctions

Hizbollah’s long history in dealing with illicit funds means the group could still find ways around the sanctions.

“The money made by Hizbollah is still made” with sanctions in place, said Aurelie Daher, the author of the book Hezbollah: Mobilization and Power.

“The sanctions do not affect the means of money production, but its distribution … And it is very naive to think that Hizbollah’s accounts are in Hizbollah’s name.”

Mr Schanzer, the former terror financing analyst, agreed saying “this is an organisation that has thrived on illicit financial activities since its founding”.

The US is aware of Hizbollah’s ability to get around sanctions and says the financial targeting of Hizbollah is just one part of a larger campaign against the group.

The sanctions “are part of a broader international effort to isolate Hizbollah financially and otherwise,” said Mr Glaser.

While Hizbollah has a track record of being able to move money illicitly across the world, how much they lean on bank accounts is unknown. But given how much the organisation has rejected the implementation of the new act in Lebanon, it appears they play an important role for the group.

Resorting to violence

History has shown that when Hizbollah feels like its back is against the wall, it can and does respond with violence.

In May 2008, Lebanon’s government moved to disable Hizbollah’s private telecommunications network – a vital and powerful element of Hizbollah’s autonomous state within a state. Hizbollah reacted by deploying its fighters and storming west Beirut. Pro-government militias were quickly routed. The army stood idly by, afraid that intervention would split its ranks and tumble the country into an all-out civil war. After a few days of fighting, Hizbollah’s hegemony was again validated. And its communications network left alone.

Depending on how important access to the banking sector is for Hizbollah, there is the potential for the group to use violence to get its way again.

“It’s a very serious threat to the functionality of Hizbollah and its supporting entities and institutions,” said Mr Salamey, the professor. “Shutting off their financial infrastructure that operates within the Lebanese financial system is not easy - it is as serious as cutting off the communication system that took place in 2008 and required a violent response by Hizbollah.”

In the current balance of power – with Hizbollah likely the strongest single actor in Lebanon – the group’s leaders know that at any time they can force their will.

Tough talk

In the lead up to the attack on Blom Bank, Hizbollah said the actions of the banks amounted to blackmail.

“The current US administration’s targeting of the resistance and its supporters through the Lebanese banking sector is doomed to fail and will not succeed in achieving its objectives,” said Hizbollah’s parliamentary bloc before the June 12 bombing.

After the bombing, Hizbollah did not join other parties in expressly condemning the attack. Instead, its Al Manar channel questioned why Hizbollah was being blamed while extremist groups like ISIL and Jabhat Al Nusra were escaping suspicion.

Lebanon’s speaker of parliament Nabih Berri, the former warlord who heads the Hizbollah-allied Shiite Amal party, condemned the bombings but later accused the banking regulations of targeting all of Lebanon’s Shiite community, not just Hizbollah.

“One gets the sense that with Hizbollah pushing back, they have the ability to hold Lebanon hostage,” said Mr Schanzer. “We don’t know whether this bombing of Blom Bank was Hizbollah or not, but certainly there was a message sent that Hizbollah is not going to stand for this. What you now have is the potential for Hizbollah to make life extremely difficult for these banks right now.”

Matthew Levitt, a Hizbollah expert at the Washington Institute for Near East Policy and author of Hizbollah: The Global Footprint of Lebanon’s Party of God, described Hizbollah’s bank accounts as “very important” to the group. “The Blom Bank bombing is being seen as a warning that the banks and regulators should not take more action against Hizbollah within the Lebanese banking system.”

The coming weeks or months should give a better signal of how the banking sector drama will play out – whether Hizbollah will back down, whether the banks will retreat or whether there is some kind of compromise that can be made.

For now though, Lebanese are left wondering how banking laws created across the world could translate into escalated tensions and violence in their country.

“Whether you agree or disagree with the operations of Hizbollah, this poses an interesting dilemma in international affairs. How can states survive as a sovereign entity if the financial institutions can have that much jurisdiction over their functionality?” said Mr Salamey.